With cryptocurrencies such as Bitcoin continuously gaining traction in mainstream markets, you may have come across terms like “blockchain,” “decentralized finance (DeFi),” “non-fungible tokens (NFTs),” “stablecoins,” and more. While these might seem confusing to the uninitiated, each concept plays a vital role in the cryptocurrency ecosystem—and at the very heart of things is blockchain.
Blockchain is the revolutionary technology that enables cryptocurrency, but it has various other applications beyond it. First conceptualized by Stuart Haber and W. Scott Stornetta in 1991, blockchain saw many early developments in the next two decades. However, it was not until the landmark white paper of Satoshi Nakamoto in 2008 that the ideas behind blockchain came to fruition through the Bitcoin network.
Since then, cryptocurrency has grown significantly and blockchain has been implemented in several other industries. With its potential to transform the ways we transact and keep records, blockchain remains a powerful technology for industries to explore—and it is only expected to grow.
If you’re interested in learning about this technology, take a look at some blockchain basics below.
What is blockchain?
A blockchain is a distributed ledger that stores information in a digital format, distributed across a network of computers, and maintained by a peer-to-peer model. Because it operates on a distributed and decentralized model, it is more robust than current trade models. As a result, transactions are more secure, immutable, and transparent.
How does blockchain work?
Through this technology, data is structured into sets called “blocks” and linked together in a chain. Once a block’s storage capacity is filled, it is closed and added to a chain of previously filled blocks. Thus, blockchains are structured chronologically and the timeline of data is irreversible.
A transaction begins through a user’s wallet software, which is enabled using private keys. Each time a user requests a transaction, a block is created with the transaction data and is then transmitted through the system. Validating nodes, or network operators, then decide whether to verify or block the transaction. Once verified, the transaction data is logged and the block is added to the ledger. The transaction is then executed.
Blockchain Attributes
Due to its robust nature, blockchain has the potential to disrupt our traditional, centralized means of transacting. For a deeper understanding of how it works, we must understand its key features.
Immutability
Transactions made through a blockchain are permanent and cannot be altered. Because transactions are broadcast to every node on the system, its validity relies on a consensus of the nodes. This makes it more transparent compared to centralized models. Moreover, once blocks have been added to the ledger, users on the network will not be able to edit, remove, or update them.
Distributed ledger
This means the main ledger is distributed across all nodes and maintained. All users on the system maintain the ledger by validating each transaction, which is shared through indistinguishable copies. The majority of the nodes validate the transactions. Even if one node fails to operate, the remaining nodes continue to operate.
Decentralization
Because the ledger is maintained by a group of nodes, there is no central authority overseeing the network. Users can directly access the network and use it for transactions. This also gives the user direct control over their digital assets, which they can access with a private key.
Security
The increased level of security attributed to blockchain technology is two-fold: it is highly secure because its decentralized nature prevents changes decided by any single central authority and it is cryptographically sealed. Cryptography employs an algorithm that creates a unique identification for every data, making data alterations virtually impossible. Though access is granted through a private key, users can make transactions through a public key.
Faster transactions
Transactions made through the blockchain are almost instantaneous, powered by a large network of nodes. This makes it a powerful alternative to traditional models.
Types
Public blockchains
Public blockchains are entirely faithful to the attributes of blockchain technology in that they are completely decentralized. Data is accessible to all users in the network who must come to a consensus when storing data on the ledger. A primary example of a public blockchain is Bitcoin.
Private blockchains
Private blockchains are mostly used within organizations, with only a few specific users. Thus, it is controlled by one organization, and transactions may be verified or declined to conform to specific rules and regulations.
Consortium blockchains
Consortium or permission blockchains are a hybrid between public and private blockchains. This type of blockchain allows only a limited number of users to undergo the process of consensus on transactions. This type of blockchain is partially decentralized. Privacy of data is kept, while there is no single authority controlling the transactions.
Real-world applications of Blockchain
Cryptocurrencies
Cryptocurrencies—including the most well-known Bitcoin—exist on blockchain technology. This medium of exchange uses encryption techniques for the creation of digital currencies and the transfer of funds.
Blockchain has the potential to reach more and more industries outside of cryptocurrency and applications, as it continues to be explored. For instance, the recently conducted 4th Bitcoin SV Hackathon provided a platform for developers to see if their projects and ideas are viable on the Bitcoin SV blockchain.
Money transfers and other financial exchanges
While blockchain is more popularly used in cryptocurrency, it also provides a faster, more secure, and less expensive alternative to traditional exchanges.
Smart contracts
Through blockchain, contracts are done in real time, raising the level of accountability between parties. This has tremendous potential for various industries including government and healthcare.
Logistics and supply chain tracking
Blockchain makes it easier to communicate between parties, as transactions are done on a secure public ledger. Partners can also transact with a higher level of trust since data is unalterable.
Healthcare
Apart from smart contracts, blockchain can also be used for storage and access to medical information, which guarantees that medical workers can secure accurate and updated information on their patients.
Real estate
Blockchain in real estate minimizes the paper trail while providing a more secure means of verifying and transferring ownership of properties. This results in faster, less expensive real estate transactions.
Cryptocurrency and beyond
Beyond the realm of cryptocurrency, blockchain is proving to be a revolutionary technology. Its immutability, security, transparency, and decentralized nature can make way for several more industries to make their transactions more efficient—and ultimately make it safer for all users transacting through the network.
